The iced-up world of the credit markets?and trying to thaw them out?may merit all the attention it has gotten as governments and their central banks try repeatedly to reignite a "flow of funds" among banks amid a worsening economic crisis. Still, a similarly frigid market?the buying and selling of real assets, namely land?must also warm up to transactions, or a flow of deals, before the deeply troubled housing economy can begin to get back on track, said panelists on the "Land in Limbo" session at the 2008 Developer Conference this week.

Dallas-based Comerica Bank, and Pasadena, Calif.-based East/West Bank have recently joined the ranks of IndyMac Bank, Key Bank, and Wachovia, among others, with hundreds of millions of dollars in real estate asset portfolios sorely in search of bargain-hunting buyers. Thing is, the bargains are not anywhere nearly good enough for the pros who look through the holdings to opt for the spoils. Thus far, the banks have been unwilling to capitulate enough on price because of the negative impact doing that would have on their overall assets, leverage ratios, and financial viability.

Save for a sale here and there motivated mostly by expiring opportunities for land sellers to claim tax refunds against money-losing land deals, bid-and-ask spreads for land in most residential growth markets remain stuck far apart and going nowhere. It may be well into next year before banks, homebuilders, and other land purveyors find takers for what they have for sale.

The reasons? There's still no way to attach value to the stuff since there are so few houses being sold. And the ones that are being sold are being written down so far as to make their land cost base a losing proposition. Nobody?not homebuilders/developers, banks, or property owners?wants to or can afford to model the value of their lots against today's market of deep discounts and foreclosure sales, so sellers and buyers are in a standoff.

"The expression a year ago is that you did not want to catch 'the falling knife'" by buying when prices were still undergoing downward pressure, said Albert Praw, CEO of San Francisco-based Landstone Communities. "Now, I'd say it's more like you don't want to catch a falling chain saw." Said Chris Ward, managing principal of Lake Mary, Fla.-based Magnolia Florida, he's looked at more than 300 deals in Florida, priced at more than $2.5 billion, and made offers on 20. But he's closed on zero.

"On average, I'm at 30 cents on a dollar on my offers and the banks are at 80 cents," Ward said. He believes affordability?a trend-normalized relationship between household income and home prices?will ultimately determine the timing and base price of land transactions. While labor and materials will probably not represent much opportunity for price reductions, municipal entitlements and impact fees might be one area to hope for savings?but the biggest delta is the lot price itself. "If banks are forced to mark assets to market, then I can buy. If they're not forced to do that, maybe the government will set up some mechanism for us to partner with the banks" to take a position in their real estate acquisition portfolios to work them through, Ward said.

While it appeared just eight to 10 months ago that liquidity amassing in all corners of the globe was chomping at the bit for homebuilding lots that would hit tomorrow's pipeline, a calamitous seven-month slide into financial chaos has heightened caution on the part of professional money to the point where no deal seems safe. Meanwhile, a fair amount of liquidity has been wiped out.

"All the government initiatives focused on the credit markets first, but everyone knows that to stabilize housing, something's going to have to happen to stop foreclosures," says Laurence Pelosi, executive director for merchant banking at Morgan Stanley. The second part of federal initiatives will address foreclosures, especially as foreclosure sales depress prices by an additional 20 percent to 40 percent in their markets. "The foreclosure market will top out and normalize sometime between late 2009 and 2010, and then we'll see transaction volumes up again," Pelosi says.

Until then, it appears, the land game is a game of who'll blink first, a seller or a buyer.

John McManus is editorial director of Big Builder, Multifamily Executive, and Developer magazines.